14. Which Algorithm for Which Market
Sports, stocks, and crypto are three different physics. Matching the algorithm to the price process is half the job.
Part IV · Chapter 14
| Dimension | Sports / prediction | Stocks | Crypto |
|---|---|---|---|
| Price process | Jump-diffusion on [0,1], vol crush at resolution | Diffusion + scheduled jumps (earnings, macro) | Diffusion + unscheduled jumps, 24/7 |
| Fair-value anchor | External model (Markov match model) | Microprice + order-flow signals | Cross-venue price + microprice |
| Dominant risk | Courtsider adverse selection at events | Institutional informed flow; queue games | Cross-exchange arb pick-offs; trend inventory |
| Hedging | Essentially none (binary, no underlying) | Rich (correlated names, ETFs, options) | Excellent (perps, other venues) |
| Fee regime | Parabolic taker fees ⇒ maker-only | Rebate capture; reg constraints | Tiered; rebates at volume |
| Best-fit algorithms | Model-anchored AS-in-logit + event gating (Prop. A/B) | GLFT + microprice + queue craft | Cross-exchange hedged MM, grids in ranges, funding-aware perps MM |
Reading the table strategically
- Sports: your edge is the model and the event reflex, not latency-in-general. A correct fair value 300ms after a point beats a fast-but-naive quote every time. Unhedgeable inventory means caps must be honest.
- Stocks: the rebate and the queue are the business; the math (GLFT) governs the residual inventory. For most independents, options spreads are the more realistic prize (Ch. 13).
- Crypto: the hedge leg transforms the problem: with instant hedging, inventory risk shrinks and the game becomes fees + slippage + toxicity. Funding adds a carry dimension unique to perps. (Chapter 17 walks the complete build, from signal to live bot.)
One principle above allThe algorithm follows the price process; the price process follows the asset. Never port a quoting engine across asset classes without re-deriving what σ, jumps, (T−t), and "fair value" even mean there.
13. Interactive Brokers & Alpaca: The Equities Reality Check
In US equities, "market maker" is a legal status you probably can't have — but liquidity-providing strategies are still on the table.
15. The Algorithm Catalog
Eight families, from naive to frontier — each with its intuition, math, and honest weaknesses.